This is an important update in the Australian corporate and insolvency law context because, in BTI 2014 LLC v Sequana SA and others [2022] UKSC 25, the UK Supreme Court (being the UK’s highest court) confirmed the existence of a duty owed by directors to creditors in certain circumstances (creditor duty). Under the common law and equity (together, general law), there is a gateway to applicability of the creditor duty in Australia.

On Friday, 29 July the Minister for Enterprise, Trade and Employment signed into law the European Union (Preventative Restructuring) Regulations 2022 (the "Regulations").

Part 1 of this two-part series explored potential legislative changes which could impact the Australian insolvency landscape in 2022 and beyond. Part 2 addresses the recent major developments in case law that have the potential to shape the insolvency landscape in Australia for many years to come.

Although there is no technical requirement for a judgment to apply to make a debtor a bankrupt (as confirmed by the Supreme Court in Harrahill v Cuddy[1]), the Court has a very wide discretion to refuse to issue a bankruptcy summons. Therefore, an applicant will typically rely on a judgment to ground a bankruptcy petition.

Background

Financial support for businesses impacted by COVID-19, legislative provisions (such as the statutory relaxation to insolvent trading liability) and general creditor leniency have resulted inhistorically low insolvency appointments during the last two years.

The High Court has handed down the long-awaited decision of Stubbings v Jams 2 Pty Ltd [2022] HCA 6, unanimously overturning the decision of the Victorian Court of Appeal. In so doing, the Court held that enforcement of rights under a personal guarantee was unconscionable.

In Walton v ACN 004 410 833 Limited (formerly Arrium Limited) (in liquidation) [2022] HCA 3, the High Court extended the purpose for which, and incidentally parties by whom, public examinations may be used.

For some time, controversy has surrounded the question as to whether unsecured creditors of an insolvent company can utilise set-off under s 553C of the Corporations Act 2001 (Cth) (Act) against unfair preference claims.

Public examinations are a powerful process for a liquidator to explore the reasons for a company’s failure, identify any claims the liquidator or the company might have and assess recoverability prospects following any successful claim.

In a similar vein, liquidators might also obtain document production orders against natural persons and corporate entities. Such document production orders are often obtained in advance of examinations, and can assist the liquidator in its investigations and preparation for the examinations.

The High Court recently extended the bankruptcy period of an Irish businessman to a total of 13 years.

The usual bankruptcy term is one year, however this can be extended in cases of non-cooperation or non-disclosure of assets with the maximum term being 15 years.